BILL ANALYSIS Ó
AB 851
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 851
(Mayes) - As Amended April 13, 2015
SUBJECT: Local government: organization: disincorporations.
SUMMARY: Makes changes to the city disincorporation process in
the Cortese-Knox Hertzberg Act. Specifically, this bill:
1)Declares that it is the intent of the Legislature that any
proposal that includes the disincorporation of a city results
in a determination that the debt or contractual obligation and
responsibilities of the city being disincorporated shall be
the responsibility of that same territory for repayment.
Requires the city to provide a written statement to the local
agency formation commission (LAFCO) prior to filing a proposal
to initiate disincorporation proceedings that determines and
certifies all of the following:
a) The indebtedness of the city;
b) The amount of money in the city's treasury;
c) The amount of any tax levy or other obligation due the
city that is unpaid or has not been collected; and,
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d) The amount of current and future liabilities, both
internal debt owed to other special or restricted funds or
enterprise funds within the agency and external debt owed
to other public agencies, outside lenders, or contractual
obligations. Liabilities may include, but not be limited
to, contracts, retirement obligations, and unfunded pension
liability.
2)Requires the city to provide a written statement identifying
the successor agency to the city's former redevelopment
agency, if any.
3) Specifies information that must be included in a plan for
services with a proposal for a disincorporation or
reorganization that includes a disincorporation, as follows:
a) An enumeration and description of the services currently
provided by the city proposed for disincorporation and an
identification of the entity or entities proposed to assume
responsibility for the services following the completion of
disincorporation;
b) An enumeration and description of each service proposed
to be discontinued, the current financing of the service or
services, and any method of financing proposed by the
successor agency or agencies;
c) A delineation of any existing financing of services
currently provided to include, but may not be limited to,
bonds, assessments, community facility district governance,
general taxes, special taxes, other charges, and joint
powers authorities or agreements;
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d) An indication of any current bankruptcy proceeding
including, but may not be limited to, status and exit plan;
e) An indication of any current order relating to services
provided by the city proposed for disincorporation by any
agency, department, office or other division of the state,
including, but may not be limited to, a cease and desist
order or water prohibition order;
f) A written statement from each affected local agency,
identified pursuant to a), that they received a copy of
the plan for services; and,
g) Any other information the executive officer may deem
necessary to fully consider the disincorporation proposal.
4)Adds disincorporation to a provision in existing law for
incorporation that requires notification from an executive
officer to affected local agencies and requires local agencies
to provide data to the executive officer in order to process a
proposal in a timely manner.
5)Requires the executive officer to prepare a comprehensive
fiscal analysis for a disincorporation proposal. Requires the
fiscal analysis to become part of the executive officer's
report prepared pursuant to existing law. Requires data used
for the analysis to be from the most recent fiscal year (FY),
as specified.
6)Requires the fiscal analysis to review and document each of
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the following:
a) The direct and indirect costs incurred by the city
proposed for disincorporation for providing public services
and facilities during the three FYs immediately preceding
the submittal of the proposal for disincorporation;
b) The sources of funding, if any, available to the
entities proposed to assume the obligation of the city
being disincorporated and the related costs in the
provision of existing services;
c) Requires the executive officer, when determining costs
to include all direct and indirect costs of any public
services proposed to be transferred to state agencies for
delivery; and,
d) Any other information and analysis needed to allow the
LAFCO to make certain determinations prior to a city
disincorporation, as required by this bill.
7)Prohibits a LAFCO from approving or conditionally approving
any proposal that includes a disincorporation, unless a LAFCO
makes all of the following determinations:
a) The proposed disincorporation is consistent with the
intent of this division to provide for a sustainable system
for the delivery of services;
b) The LAFCO has considered the service reviews of
municipal services and spheres
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of influence of the affected local agencies, and the
disincorporation will address the necessary changes to
those spheres of influence, if any;
c) The LAFCO has reviewed the comprehensive fiscal
analysis, as required by this bill;
d) The LAFCO has reviewed the executive officer's report
and recommendations prepared pursuant to existing law, and
the oral or written testimony presented at public hearing;
and,
e) The service responsibility of the city proposed for
disincorporation has been assigned through the terms and
conditions, as authorized by existing law, and LAFCO has
approved a transition plan to provide those services, if
one was requested by the executive officer.
8)Requires LAFCO to determine the amount of property tax revenue
to be exchanged by the disincorporating city and any successor
agency or affected local agency pursuant to a specified
process that is substantially similar to the process in
existing law for incorporations.
9)Requires LAFCO to notify the county auditor of the
disincorporation proposal and the services proposed to be
transferred, as specified.
10)Establishes processes for calculating a property tax exchange
depending on, if the disincorporation proposal transfers all
of the service responsibilities of the disincorporating city
to the affected county or a single affected agency.
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11)Requires any action brought by a city or district to contest
any of the determinations of the county auditor or LAFCO in
regard to the amount of property tax revenue to be exchanged
to be commenced within three years of the effective date of
the disincorporation.
12)Requires LAFCO, if the proposal to disincorporate a city
includes the assignment of property tax revenues to a
successor agency, to make the following determinations, as
appropriate:
a) The increase of the appropriations limit for the
successor agency or agencies, if the agency or agencies is
an existing entity; and,
b) The appropriations limit for a new special district
pursuant to the formation process in current law.
13)Adds city disincorporation to provisions of existing law that
establish the allocation of property tax revenue in the case
of a jurisdictional change, including incorporation.
14)Makes changes to provisions of existing law that specify the
factors a LAFCO can condition the approval of any change of
organization or reorganization upon.
15)Provides, as of the effective date of the disincorporation,
all of the following plans and documents that were in effect
immediately prior to the date of the disincorporation to
apply, as follows:
a) Requires the general plan of the disincorporated city to
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constitute as the community plan of the county for the
territory of the disincorporated city until the county
updates the community plan;
b) Requires the zoning ordinances of the disincorporated
city to constitute as the zoning ordinance of the county
for that territory of the disincorporated city until the
county updates the zoning ordinances; and,
c) Requires any conditional use permit or legal
nonconforming use to remain in force pursuant to the
community plan and zoning ordinances.
16)Repeals numerous outdated code sections in current law.
17)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made pursuant to current law governing state
mandated local costs.
EXISTING LAW:
1)Establishes the procedures for the organization and
reorganization of cities, counties, and special districts,
including procedures for the disincorporation of a city under
the Cortese-Knox-Hertzberg Act (Act).
2)Defines "disincorporation" to mean "the dissolution,
extinguishment, or termination of the existence of a city and
the cessation of its corporate powers, except for the purpose
of winding up the affairs of the city."
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FISCAL EFFECT: This bill is keyed fiscal and contains a
state-mandated local program.
COMMENTS:
1)LAFCOs and Current Law. LAFCOs are responsible for
coordinating logical and timely changes in local governmental
boundaries, conducting special studies that review ways to
reorganize, simplify, and streamline governmental structures,
and preparing a sphere of influence for each city and special
district within each county. The courts refer to LAFCOs as
the Legislature's "watchdog" over local boundary changes. The
Act establishes procedures for local government changes of
organization, including city incorporations,
disincorporations, annexations to a city or special district,
and city and special district consolidations. LAFCOs regulate
boundary changes through the approval or denial of proposals
by other public agencies or individuals for these procedures.
The Act prescribes a process for disincorporation, which is
similar to most boundary changes that require numerous steps:
1) Application to LAFCO, by petition or resolution, for an
environmental review, and property tax exchange agreement; 2)
Noticed public hearing, testimony, and approval or disapproval
by LAFCO in which they can impose terms and conditions; 3)
Additional public hearing for protests (if a majority of the
city's voters file protest, the disincorporation stops, and if
not, LAFCO must order an election on the proposed
disincorporation); 4) Disincorporation election among city
voters, which requires a majority vote approval; and, 5) LAFCO
staff files documents to complete the disincorporation.
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Upon the effective date of a disincorporation, the county
board of supervisors is responsible for winding up the affairs
of the former city. Residents of the former city no longer
have any rights or duties as inhabitants or voters of a city.
Prior to the effective date, public officers must turn over
public property to the county board of supervisors, and the
city council must turn over all city funds, as certified by
the LAFCO or the county, to the county treasurer. The county
tax collector may collect any levied but uncollected taxes
owed to the disincorporated city, and the county may collect
or sue for all debts owed the city. Other territories within
the county are not responsible and may not be taxed for the
debts or liabilities of the former city.
2)Bill Summary. This bill makes several changes to the statutes
that govern the city disincorporation process. In addition to
repealing several outdated code sections, this bill builds
upon provisions in existing law for incorporations which
require information about services and finances to be provided
with the proposal. For example, current law requires an
applicant to submit a plan for providing services with a
proposal. This bill specifies what must be included in that
plan for services in the case of a disincorporation, or a
reorganization that includes a disincorporation, to provide
LAFCOs with additional information about the provision of
services. This bill also requires the executive officer of a
LAFCO to prepare a comprehensive fiscal analysis as part of
the report current law requires them to provide to LAFCO in
recommendation of approving or disapproving a proposed change
of organization or reorganization. Current law requires a
fiscal analysis to be done for incorporations; this bill
mirrors those provisions in existing law and would provide
LAFCO, successor agencies, and the public with more
information about the financial status and impact of a city
disincorporation. Also, similar to provisions in current law
for incorporations, this bill establishes a process for the
exchange of property tax revenue for disincorporations. Under
this bill, LAFCOs must make specified determinations before
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approving or conditionally approving a disincorporation
proposal.
This bill does not make any changes to the existing
disincorporation process related to public involvement,
including public notice, hearing, protest, and election
requirements.
This bill is sponsored by the California Association of Local
Agency Formation Commissions.
3)Author's Statement. According to the author, "The statutes
addressing disincorporation have not been updated since the
inception of LAFCOs in 1963. Under existing law, the intended
procedure for dispensing with debt and unfunded liabilities is
not in compliance with Propositions 13 and 218. This could
result in the county at large being responsible for the debts
and unfunded liabilities of a city that has disincorporated.
This bill brings the sections of the Act into full compliance
with the mandates of Propositions 13 and 218."
4)Disincorporation in California. Seventeen cities have
disincorporated in California's history, including the cities
of Long Beach (1896), Pismo Beach (1940), and Stanton (1924),
each of which later reincorporated. The Legislature
disincorporated several cities by statute, including the
following cities: Columbia (1870), Dutch Flat (1866), Felton
(1917), and Hornitos (1973). Hornitos and Cabazon are the
only two cities that have disincorporated since the creation
of LAFCOs in 1963. The City of Cabazon, located in Riverside
County, was disincorporated in 1973, and went through the
process contained in LAFCO law. The Town of Hornitos, located
in Mariposa County, was disincorporated by statute in 1972
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(AB 2374, Chappie).
More recent discussions surrounding the issue of
disincorporation are in reference to several cities in
California impacted by the redirection of Vehicle License Fee
(VLF) revenues away from newly incorporated cities and
annexations. The realignment shift in 2011 disproportionally
endangered the fiscal viability of cities that rely on VLF
revenues and after several failed legislative attempts to
remedy this issue, cities like Jurupa Valley have continued to
discuss possible disincorporation.
News reports on the possible disincorporation of the City of
Adelanto in San Bernardino County have persisted despite
assurances by city officials that the City has the budget for
one more fiscal year and that they continue to look into long
range revenue generating and saving opportunities. Most
recently, a Santa Barbara grand jury released a report earlier
this month calling for the City of Guadalupe to disincorporate
due to fiscal mismanagement, a declining tax base, and
increasing debt obligations. The Guadalupe City Council has
not taken any steps to suggest they will follow the
recommendation of the grand jury.
5)Policy Considerations. The Committee may wish to ask the
author to consider the following:
a) Clarity and Consistency. The Act contains a number of
definitions frequently used in the statutes that govern
LAFCOs. However, this bill contains references to several
phrases that are not defined in the Act, including a
"transition plan". The Committee may wish to encourage the
author and sponsor to either provide a definition for the
plan or delete it from the bill to avoid confusion.
Additionally, while "successor agency" is used in the Act
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in reference to the designation of a city, county, or
district, as the successor to any local agency that is
extinguished as a result for any change of organization or
reorganization, given the common use of "successor agency"
in reference to Redevelopment Law, the author and sponsor
may wish to explicitly define this term in the Act.
b) Striking a Balance. Existing law authorizes LAFCOs to
subject any change of organization or reorganization to
terms and conditions that can include anything from
conditioning a city disincorporation on the passage of a
new revenue stream, to the transfer of contracts. The
Committee may wish to encourage the author and sponsor to
continue to work with stakeholders to ensure there is an
adequate balance between providing individual LAFCOs with
the flexibility to address varying local needs, and
providing adequate guidance for local governments and the
public.
6)Arguments in Support. Supporters argue that this bill is not
intended to promote the use
of the disincorporation process, nor is intended to encourage
cities to consider this as an option to relieve their fiscal
emergencies. The ultimate success or failure of a proposal
for disincorporation remains with the registered voters of the
city proposed to be disincorporated. This bill just clarifies
the required process to get to that point.
7)Arguments in Opposition. None on file.
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REGISTERED SUPPORT / OPPOSITION:
Support
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California Association of Local Agency Formation Commissions
[SPONSOR]
Contra Costa Local Agency Formation Commission
California State Association of Counties (In Concept)
Imperial Local Agency Formation Commission
Local Agency Formation Commission for San Bernardino County
Orange County Local Agency Formation Commission
Rural County Representatives of California (In Concept)
San Bernardino County (In Concept)
San Luis Obispo Local Agency Formation Commission
San Mateo Local Agency Formation Commission
Sonoma Local Agency Formation Commission
Urban Counties Caucus (In Concept)
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Opposition
None on file
Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958